Avnet (AVT)

Electronic components distributor Avnet (NASDAQGS:AVT) reported Q3 CY2025 results beating Wall Street’s revenue expectations, with sales up 5.3% year on year to $5.90 billion. Guidance for next quarter’s revenue was optimistic at $6 billion at the midpoint, 2.5% above analysts’ estimates. Its non-GAAP profit of $0.84 per share was 4% above analysts’ consensus estimates.

Company Overview

With a century-long history of adapting to technological evolution, Avnet (NASDAQ:AVT) is a global electronic components distributor that connects manufacturers of semiconductors and other electronic parts with businesses that need these components.

IT Distribution & Solutions will be buoyed by the increasing complexity of IT ecosystems, rising cloud adoption, and demand for cybersecurity solutions. Enterprises are less likely than ever to embark on these complicated journeys solo, and companies in the sector boast expertise and scale in these areas. However, cloud migration also means less need for hardware, which could dent demand for large portions of the product portfolio and hurt margins. Additionally, planning for potentially supply chain disruptions is ongoing, as the COVID-19 pandemic showed how damaging a pause in global trade could be in areas like semiconductor procurement.

Avnet's main competitors include Arrow Electronics in the Electronic Components segment, while Mouser Electronics, Digi-Key Electronics, and RS Components compete with its Farnell segment. Other significant competitors include Future Electronics, World Peace Group, and WT Microelectronics.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.

With $22.5 billion in revenue over the past 12 months, Avnet is a behemoth in the business services sector and benefits from economies of scale, giving it an edge in distribution. This also enables it to gain more leverage on its fixed costs than smaller competitors and the flexibility to offer lower prices. However, its scale is a double-edged sword because it’s challenging to maintain high growth rates when you’ve already captured a large portion of the addressable market. For Avnet to boost its sales, it likely needs to adjust its prices, launch new offerings, or lean into foreign markets.

As you can see below, Avnet’s sales grew at a mediocre 4.9% compounded annual growth rate over the last five years. This shows it couldn’t generate demand in any major way and is a tough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within business services, a half-decade historical view may miss recent innovations or disruptive industry trends. Avnet’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 7.2% annually.

This quarter, Avnet reported year-on-year revenue growth of 5.3%, and its $5.90 billion of revenue exceeded Wall Street’s estimates by 3%. Company management is currently guiding for a 5.9% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 4.7% over the next 12 months. Although this projection implies its newer products and services will fuel better top-line performance, it is still below the sector average.

Avnet’s operating margin might fluctuated slightly over the last 12 months but has remained more or less the same, averaging 3.6% over the last five years. This profitability was lousy for a business services business and caused by its suboptimal cost structure.

Analyzing the trend in its profitability, Avnet’s operating margin might fluctuated slightly but has generally stayed the same over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, Avnet generated an operating margin profit margin of 2.4%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Avnet’s EPS grew at a spectacular 13.5% compounded annual growth rate over the last five years, higher than its 4.9% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Avnet, its two-year annual EPS declines of 33.8% mark a reversal from its (seemingly) healthy five-year trend. We hope Avnet can return to earnings growth in the future.

In Q3, Avnet reported adjusted EPS of $0.84, down from $0.92 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 4%. Over the next 12 months, Wall Street expects Avnet’s full-year EPS of $3.36 to grow 55.8%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Avnet broke even from a free cash flow perspective over the last five years, giving the company limited opportunities to return capital to shareholders.

Taking a step back, an encouraging sign is that Avnet’s margin expanded by 2 percentage points during that time. The company’s improvement shows it’s heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability was flat.

Avnet burned through $169.2 million of cash in Q3, equivalent to a negative 2.9% margin. The company’s cash flow turned negative after being positive in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Avnet historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 10.6%, somewhat low compared to the best business services companies that consistently pump out 25%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. On average, Avnet’s ROIC decreased by 4.1 percentage points annually over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Avnet reported $175.5 million of cash and $3.20 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $715.1 million of EBITDA over the last 12 months, we view Avnet’s 4.2× net-debt-to-EBITDA ratio as safe. We also see its $121.5 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by Avnet’s optimistic revenue guidance for next quarter, which blew past analysts’ expectations. We were also glad its revenue outperformed Wall Street’s estimates. On the other hand, its EPS guidance for next quarter missed. Overall, this print had some key positives. Investors were likely hoping for more, and shares traded down 3.9% to $48.61 immediately after reporting.

Updated: December 4, 2025 at 11:21 PM EST

Are you wondering whether to buy Avnet or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

Avnet isn’t a terrible business, but it doesn’t pass our bar. To begin with, its revenue growth was mediocre over the last five years. And while its scale makes it a trusted partner with negotiating leverage, the downside is its low free cash flow margins give it little breathing room. On top of that, its operating margins reveal poor profitability compared to other business services companies.

Avnet’s P/E ratio based on the next 12 months is 10x. While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're fairly confident there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $53 on the company (compared to the current share price of $49.24).